Question

After-Tax Cost of Debt LL Incorporated's currently outstanding 8% coupon bonds have a yield to maturity of 13%. LL believes it could issue new bonds at par that would provide a similar yield to maturity. If its marginal tax rate is 35%, what is LL's after-tax cost of debt? Round your answer to two decimal places.?

Answer 1

multiply by 1-Таx rate After tax cost of debt8.45% [13% x (1-35%)

Answer 2

SOLUTION :

After tax cost of debt 

= Pre tax cost of debt * ( 1 - Tax rate in decimals)

= Yield to maturity in percentage * ( 1 - Tax rate in decimals)

= 13 * ( 1 - 0.35)

= 8.45 % (ANSWER)